Innovative financing will be key to restoring public transport

This blog was originally published in Mint on 14 July.

A little over 100 days since the covid-19 pandemic brought India to a standstill, damaging lives, livelihoods and the economy, a glimmer of hope has finally appeared. After months of lockdown, the economy is showing some signs of recovery.

In the coming months, as we step out of the lockdown, our focus will be on rebuilding livelihoods through an economic revival. Restoring and reinventing public transport, while also paying attention to physical distancing and other hygiene protocols, will be fundamental. Securing safe public transport can ensure that workers efficiently access workplaces, students reach educational institutes, customers their stores, and service providers their clients. Only then can economic activities resume, allowing people to stave-off poverty and joblessness.

The ‘new normal’ can’t handle old losses: India’s public transport has been incurring financial losses for years now. In 2016-17, statistics from the Central Institute of Road Transport showed that state-owned bus companies incurred a combined loss of ₹16,409 crore that year. The 2018-19 annual reports of metro rail services reported losses to the tune of ₹765 crore and ₹496 crore in large cities like Delhi and Bengaluru, and ₹75 crore and ₹52 crore in second-tier cities like Lucknow and Jaipur, respectively.

In fact, public transport is inherently loss-making globally, as affordability concerns do not permit operators to charge fares that enable cost recovery. Hence, public subsidies have often been used to keep the system functional. This situation has been further aggravated during the lockdown, as public transport continued to incur 60-65% of its expenses (staff salaries and overheads) while earning no revenue.

While existing losses have made it poorer, resuming operations in the ‘new normal’ will require enhanced expenses to ensure passenger distancing and hygiene, thereby adding further stress to the financial pool. Revenues will also drop substantially due to a reduction of passengers-per-trip, lesser office strengths and the new work-from-home culture.

Newer paradigms in financing: The traditional approach of bridging the revenue-cost gap in India through public subsidies will not be tenable as competing demands to deal with the pandemic will strain public budgets. Is it prudent then to explore newer paradigms for financing public transport?

To our benefit, cities worldwide have several approaches that could help us reinvent our public transport and restart the economy.

Recognizing ‘non-users’ as beneficiaries: Many countries recognize that not just the users, but also ‘non-users’—citizens who don’t use public transport daily, but gain indirectly from its existence—should contribute to the system.

Among some global best practices is the transport tax levied on businesses in France, based on the size of the wage bill. The rationale is that public transport enables employees to reach work and employers are thus able to run their businesses.

In the US and Colombia, several cities have adopted a ‘land-value capture’ approach, which identifies the increase in property value based on the accessibility of its location, thereby levying taxes on this increase.

The US also levies gasoline taxes, and London levies congestion charges, on private vehicle users—funds that go towards supporting public transport. The view is that private vehicle-users benefit from encountering lesser traffic due to public transport.

In India, taxes on fuels and motor-vehicles are levied, but they go into a general pool and get used for multiple purposes. Creating a pool of ‘dedicated taxes’ that goes toward supporting public transport would give a new lease of life to public transport and the economy.

Exploiting land resources: Public transport services typically own significant parcels of valuable land that can be commercially exploited to benefit operations. So far, these lands have been mainly viewed as operational assets, never as revenue-earning.

Taking the Delhi metro, a back-of-the-envelope calculation juxtaposed against data on property sale and rental values collated from the website Magicbricks shows that it could raise over ₹4.9 trillion through the sale of property and nearly ₹1.25 trillion via 20-year leases of land owned within a 200-meter radius. The rental income alone could comfortably meet the operating revenue gap for not just the metro, but Delhi’s entire public transport system. Sale revenues could help repay loans and create capital for future investments.

Similarly, the Delhi Transport Corporation owns nearly 100 depots, mostly on prime land, which are largely used for parking buses at night and preventive maintenance. In the daytime, these spaces could be rented out (like, for public parking). ‘Air rights’—for the space above the depots—could be sold to residential and office complexes, boosting revenue generation, footfalls and passenger numbers.

Economic and ecological benefits: Reassessing subsidies and commercially exploiting land can be quick and non-fussy ways of assembling funds to enable social-distancing, add more buses and train/metro compartments, and achieve better frequency and route rationalization. They can also help cities set up hi-tech services like contact-less ticketing and live navigation.

Further, diesel and congestion taxes can encourage personal motor-vehicle users to shift to public transport, thereby promoting non-polluting and non-congesting mobility choices. They also promote economic equity by shifting the stress of paying for it from the relatively poorer users to affluent non-users.

These are the authors' personal views.